Dwindling LME Copper Supplies Trigger Uptick in Contract Prices

Falling stocks in warehouses registered to the London Metal Exchange have raised concerns about the dwindling supply of copper. This has in turn caused the premium for nearby contracts against longer-dated contracts to increase. While copper for immediate delivery was cheaper than contracts with longer maturities about a month ago, the situation shifted, with short-term contracts becoming more expensive.

This change may be attributed to the COMEX offering better prices, which prompts more traders to send their copper to the U.S. instead of London. At the moment, copper for immediate delivery on the London Metals Exchange (LME) costs $75 more a ton than 3-month futures.

Last week saw the price difference rise to $93 per ton, its highest price in more than 2 years. This is quite a change, especially when compared to the fact that nearby copper contracts were going for $63 less than futures contracts in April. The big jump in price difference that occurred last Thursday happened because a significant amount of the metal was suddenly withdrawn from the system. This is referred to as canceling warrants.

The following day, the premium got smaller as there weren’t any new huge orders to take copper out of the warehouse. Even so, copper continued to leave the warehouse.

Commodity Market Analytics MD Dan Smith explained that these changes indicated that there was a shortage of copper, adding that normally, copper futures cost more than nearby contracts. Since February, total stocks for the red metal in the LME warehouse system have dropped by half. Now, there are only 132,400 tons left, the lowest in nearly a year. Of that, only 56,400 tons are available for purchase.

The supply shortage is especially concerning as the demand for the red metal has risen significantly over the last few years, driven primarily by the energy transition. Worries are further fueled by recent disruptions in mine supply, with some traders also diverting the metal to America while the country looks into the potential for import tariffs on the red metal.

Currently, there’s no dominant holder of copper warrants ahead of contracts’ expiry on the 3^rd Wednesday of this month. However, it is still concerning that as of June 4^th, one trader had control of more than 90% of the cash contracts. This, some experts theorize, could be a reason why the price for nearby contracts is still high as the trader could be limiting how much of the red metal is available to others.

As things stand, firms like Torr Metals Inc. (TSX.V: TMET) are poised to attract more investor interest if major exchanges like the LME continue to experience significant draw-downs on the stocks available. The market will face shortages, which could in turn direct interest to firms engaged in the copper extraction value chain.

NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (TSX.V: TMET) are available in the company’s newsroom at https://ibn.fm/TMET

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